The EU's largest economy is experiencing its longest recession since World War II, Sky News reported, with the latest figures showing Germany falling into recession for a second consecutive year in 2024. The outlook for 2025 is also grim, regardless of who wins the upcoming election.
According to the German Federal Statistical Office, the country's GDP will shrink by 0.2% in 2024, after already falling by 0.3% in 2023. This is the longest recession since World War II.
Notably, this decline comes at a time when most economists had predicted that Germany would see slight growth by the end of the year. However, preliminary figures show that the German economy unexpectedly contracted in the fourth quarter of 2024.
German Chancellor Olaf Scholz is under intense pressure with just six weeks to go until national elections. With the economy in a slump, voter dissatisfaction will be a challenge for any candidate.
Meanwhile, Germany is facing further pressure from the US, as President Donald Trump prepares to return to the White House and impose new tariffs. According to Reuters, Germany's trade surplus with the US hit a record 65 billion euros in the first 11 months of 2024, making Germany a prime target for new trade policies.
In addition, the manufacturing sector - a pillar of the German economy - has been hit hard by high energy prices since the outbreak of the Russia-Ukraine conflict, along with fierce competition from Chinese manufacturers. The auto industry, with major groups such as Volkswagen, Mercedes-Benz and BMW, is struggling to transition to electric vehicles while facing low prices from Chinese manufacturers such as BYD.
Consumer spending in Germany remains "frozen" as people tighten their purse strings due to economic uncertainty.
Massive layoffs have shaken the labor market. In the first 10 months of 2024 alone, more than 60,000 workers lost their jobs at major corporations such as Siemens, Bosch, Thyssenkrupp and Deutsche Bahn. Volkswagen is even considering closing a factory in Germany, something unprecedented in its 87-year history.
Economic forecasts from Germany's central bank, the Bundesbank, predict a 0.2% increase in GDP in 2025. However, this would not be much different from a slight decline. Some experts, such as Jens-Oliver Niklasch of LBBW Bank, are more pessimistic, predicting that Germany will fall into recession for the third consecutive year.
There are some glimmers of hope, though. The European Central Bank is expected to cut interest rates sharply this year, which could help the economy. Meanwhile, Germany’s new chancellor, expected to be Friedrich Merz of the CDU/CSU, could consider lifting the “debt brake”—which limits the government’s budget deficit to 0.35% of GDP per year—to increase defense spending as demanded by the US and stimulate economic growth.
All of this, however, is for now just a matter of possibilities rather than certainty. Meanwhile, the economic downturn could push German voters towards the far-left Sahra Wagenknecht coalition or the far-right AfD party.
